Time for rejig & relook

Geetu Vaid

Demonetisation move that has largely been interpreted as a “cleaning” operation for the real estate sector, has raised the hopes of millions of prospective homebuyers that they will now be able to afford a roof over their heads with cheaper loans and rationalised pricing. With the Reserve Bank of India (RBI) slated to update the monetary policy on December 7, the expectations of a home loan rate cut are very high at the moment. Easier funding and blocking of ‘black money’ channels is good news as far as the rise in demand and sales is considered in the residential segment.

But the arithmetic of urban housing landscape is not very simple. On the one hand there is massive demand, and on the other most of the developers, even in major cities, are sitting over unsold inventories for a long time. This is largely because the factor of profit margins for developers/builders plays an important role in deciding the supply.

There is a shortage of over 1.8 million houses in the country and a large portion of that is in the low-income group and affordable segments in the urban areas, but it is this very segment that is the most poorly serviced one when it comes to the supply. Private developers generally stay away from this segment due to low profit margins. According to a recent report released by Cushman & Wakefield and GRI while the sub Rs 15 lakh category is likely to generate demand of about 1.98 million units by 2020 in eight major cities, the supply by private developers is just 25,000 units. Similarly, though the MIG (Rs 15-70 lakh) accounts for 63 per cent of the total housing supply across eight cities between 2016 and 2020 at 6,47,000 units, the demand is estimated to be a much higher number of 1,457,000 units.

According to industry experts until and unless the supply is increased in segments wherein the demand for housing is there, the achche din for the realty sector as well as for buyers will not be a reality. “Despite encouragements from the government through taxation and funding relief, under the Housing for All 2022 vision, top cities of India have not seen a significant shift in supply for reduced sized apartments within the MIG or LIG”, says Anshul Jain, Managing Director, India, Cushman & Wakefield.

According to the report titled ‘Revitalising Indian Real Estate: A new era of growth & investment’ the urban housing demand is the highest in Delhi-NCR across all the three segments amongst the top eight cities, forming nearly 24-26 per cent of the demand in each of the categories.

Mumbai and Bengaluru will follow Delhi-NCR and are expected to generate housing demand of about 7,11,000 and 6,86,000 units, respectively over the next five years. But in most of the cities, except Mumbai, developers are currently focusing on MIG with 60-70 per cent of the upcoming supply concentrated in this segment.

At present the HIG (priced over Rs 80 lakh) and luxury segments are the most affected after demonetisation as it was in these and in the secondary market that cash component was used in transactions extensively. For the realty market to bounce back the focus has to be shifted to the segments where the demand is more.

As Anshul adds, “To be able to utilise the opportunity of the shortfall in supply to demand, private developers will need to change their approach and bring in better strategies, systems, technology and funding options. Some international development companies are actively scouting the various local markets to identify the right opportunities for themselves; Indian developers will need to gear up to meet their onslaught and remain relevant and profitable.”

There is no denying the fact that the realty sector is at the threshold of a new era which will be more transparent, organised and customer friendly but the changes in the regulatory system have to be complemented with the change in mindset of the developers who have to look at segments where the demand is concentrated rather than focusing on segments where the maximum profit lies.